Turkey

Market Status: Turkey - End to policy stalemate promises wind boom

Turkey has once again doubled its installed wind capacity year on year to reach 807MW at the end of 2009, adding 424MW to the existing 383MW.

Although less than the 600MW or more new capacity hoped for, it is still a respectable achievement given the difficult economic circumstances. Nevertheless, frustration is mounting at the seemingly interminable delays over granting the next round of licences, and at the lack of progress on the promised new renewable energy law.

More than two years after Turkey's energy market regulatory authority (EMRA) briefly opened its doors to applications for production licences, on November 1, 2007, everyone is still waiting to hear the results. Part of the problem was simply the level of interest: EMRA received 750 requests totalling more than 78GW, nearly twice Turkey's total generation capacity. It then had to decide how to evaluate the applications and how to deal with those competing for the same site or grid connection.

Meantime, there has been little movement. "The sector is still in the same place as on November 1, 2007; it hasn't progressed at all," says Akin Gunduz, global head of sales and marketing at German turbine manufacturer Innovative Winpow.

Now, however, there seems to be some light at the end of the tunnel. EMRA says it expects to issue the first licences soon for projects that do not overlap. The Turkish Electricity Transmission Corporation (TEIAS) is also shortly due to launch an auction process for cases where more than one applicant is competing for grid access.

This strategy is not without its dangers. The main problem is the number of applicants who do not have sufficiently robust wind data - or sufficient experience - and will therefore be bidding in the dark, risking the possibility of their project turning out to be non-viable and impossible to build. "If they bid low and are awarded the licence, it will block the system again," warns Tolga Bilgin vice-president at Bilgin Enerji, one of the country's leading owner-operators.

Legal matters

The other key piece in the jigsaw is the promised revision of Turkey's renewable energy law. This aims to boost private investment in order for the country to meet its target of 30% of electricity to be sourced from renewables by 2023. Wind is expected to provide some 20GW of this.

A draft law was supposed to have been presented to parliament last year, but has been continually pushed back. No new timetable has yet been announced, though some observers believe things will get moving before the summer.

The proposals under discussion include measures to speed up the permitting process and to raise the price state distribution companies must pay for green power. At present, the guaranteed minimum price for all renewables is EUR0.050/kWh, with the maximum at EUR0.055/kWh. The original draft law proposed setting the price for wind energy at EUR0.08/kWh. However, it now seems more likely that the government will be less generous, perhaps opting for EUR0.06 or EUR0.07/kWh - if it acts at all.

And even if it does, the lower rates are unlikely to tempt many producers. Up to now they have opted to sell their output on the so-called balancing-and-settlement market, Turkey's spot market, where the average price in recent years has been around EUR0.075/kWh, thanks to a continued electricity supply shortage. In summer it can reach as high as EUR0.09/kWh.

That said, the level of the state-guaranteed price is important in helping to secure financing for projects. In this regard, there are indications that local banks are becoming more willing to lend to wind power projects as they become more familiar with the sector.

"Up until recently, non-recourse project financing has been limited in Turkey, but banks seem to be getting it now and are fairly bullish," says William Hopkins, commercial director of Res Mediterranean, a subsidiary of Britain's Renewable Energy Systems (Res), which recently bought a development portfolio of nearly 500MW in Turkey (Winpow Monthly, November 2009). "Developers are also becoming more sophisticated and the banks see project financing of wind power as reasonably low risk if packaged properly," adds Hopkins.

While a stable legal framework and improved incentives will undoubtedly spark a new boom in activity, wind projects licensed before applications were banned in 2006 continue to get built. The biggest project completed last year - and Turkey's largest at that time - was a 90MW plant at Samli in the Balikesir-Bandirma region, south of the Sea of Marmara, owned by Aksa Enerji.

By the summer, Samli will be overtaken by a 135MW installation at Bahce, in south-central Turkey's Osmaniye province, owned by domestic operator Zorlu Enerji. Following close on Bahce's heels is a 140.8MW plant under construction at Soma in the Manisa region, north-east of Izmir. Soma is co-owned by Demirer Holding, Turkey's leading developer and owner-operator, and Polat Enerji, which is 50% owned by French utility EDF. The first 50.4MW were operating at the end of 2009, while the remaining 90.4MW will be commissioned in the coming months.

Nearby, Bilgin Enerji, another well-established player on the Turkish renewables scene, is building 90MW, with the first of 36 Nordex 2.5MW turbines scheduled for delivery in May. Before that, it will be rolling out another 90MW plant at Bergama, near Izmir, also powered by Nordex under a supply contract signed in 2008.

In general, while dozens of project developers are active in Turkey, there is evidence of consolidation among them, with the more established players buying projects from smaller companies and speculators.

New entrants

With an eye on the potentially huge market Turkey offers, a number of foreign investors decided to take the plunge in 2009. In addition to Res's purchase, German utility EnBW entered into a 50-50 joint venture with local conglomerate Borusan Holding, targeting around 2GW of generation capacity by 2020, mostly from renewables. Their first wind project, 45MW in Bandirma, came online in December.

On the turbine side, while Vestas and Enercon remain market leaders, India's Suzlon commissioned its first machines in Turkey at the beginning of 2009, for Ayen Enerji. Later in the year, Siemens landed its first order with a turnkey contract for 13 of its new 2.3MW machines destined for a 29.9MW project at Mahmudiye in the north-west of the country.

Also last year, Istanbul-based Model Enerji announced it was going to launch the country's first locally made megawatt-class turbine, having signed an exclusive deal with American Superconductor Corporation to manufacture and sell its 1.65MW model.

Meantime, the Turkish grid needs significant investment if the country is to achieve its 20GW renewables target.

With this in mind, since 2008 the government has been auctioning off distribution grids with the aim of privatising 20 grids.

In the more immediate term, around 600-700MW of wind power potential in the Aegean's Cesme Peninsula looks set to finally be unlocked, thanks to a public-private initiative. In 2008 EMRA gave the green light to 15 wind power projects with a combined capacity of 426MW in the peninsula. The nine owners, including Bilgin, Ayen, Guris, Calik and ENDA Enerji, have now joined together to finance the necessary substations and transmission lines. Armed with a 10% advance payment from the producers, TEIAS will call for proposals to construct the substations and lines. If all goes to plan, they should be completed by 2012.

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